Home equity loans are known as personal loans, acquired by using a property as collateral. Lenders tend to disburse more money with this type of loan because they represent less risk. It is called a home equity loan because a guarantee is signed in the name of the lender on your property. It gives the lender more leverage to take the property, if you default on the loan. The money can be used for whatever you want: trips, education, investments, cars or debt payments. The entity or financial institution that gives you the loan will demand a mortgage on the property.
The Application Process
When you submit an application for a home equity loan, the lender will ask for information about income and household documents, among others. These evaluations will be made:
- Assessing the viability of credit: your ability to pay according to income
- Evaluation of the title of the property, which will be checked to make sure that the property can be mortgaged and there are no restrictions and taxes owed
- Appraisal: The services of a specialist will be hired to determine the commercial value of the property.
This is considered a consumer loan that does not involve the purchase of a home. The home equity loan constitutes a contract through which the loan guarantee is based on a property (such as a home or premises) and not personal, as is usually the case in other types of financing. You can request this type of loan if you have a real estate property in your name.
The Interest Rate
The interest rate that you will be charged for this kind of loan is not the same as that of primary mortgages, but on the contrary, this interest rate tends to be more similar to that of personal loans. These loans are not governed by the same conditions as when you get a mortgage to purchase your first home. They are usually unrelated and have a shorter repayment term than mortgages, as they also tend to have a shorter repayment period as well.
You can apply for this loan as long as you own a home, have equity in the home and have a decent credit history. Make sure that you are current with your primary mortgage payments before applying for a home equity loan.